UPM Communication Papers Consistent profitable performance

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1 Consistent profitable performance Winfried Schaur EVP, UPM Communication Papers 31 May 2018

2 We are a relevant global player with a stronghold in Europe modern and efficient mills in Europe and North America 4 World s leading producer of graphic papers with 8,000 employees Production capacity 8,2 million t/a News 2,1/SC 1,5/LWC 2,5/WF 2,1 Global customer service and sales News/UMIO SC LWC Wood free Share of UPM Capacity in Europe, % Source: UPM, Euro-Graph, RISI, Pöyry 2 UPM The Biofore Company

3 Communication paper market demand declines steadily Europe North America Rest of UPM addressable Markets* 3,4 3, % p.a. 3,1 5,6 5,4 5,1 3,2 3,2 4,7 4,6 9,8 9,2 8,7 8,4 7,9 12,5 12,4 12,2 11,6 11,5-5 6% p.a. 1,9 1,9 3,4 1,7 3,2 1,5 2,9 2,7 1,4 6,6 2,5 6,0 5,3 5,0 4,5 12,9 12,4 12,0 11,6 11,1-2% p.a. 0,6 4,0 0,6 3,8 0,6 0,6 3,7 0,6 3,5 3,6 18,7 17,6 16,3 15,5 14,7 ~ ~ ~ ~ ~ 49,4 49,1 48,6 48,7 49, Wood Free News/Umio LWC (CMR) SC [Mt] * Markets with UPM ComPapers sales, including: South America, ME&Africa, Asia Source: UPM, Euro-Graph, RISI, Pöyry, misc. public sources 3 UPM The Biofore Company

4 We delivered according our strategy -13% -20% -12% -21% -49% Paper Demand Production Capacity Deliveries Fixed Costs OHS (LTA s) building the basis for continued profitable performance Efficient and modern assets Tight grip on costs Broad portfolio Strong geographical footprint Well-defended market position UPM Communication Papers What does it take to perform in challenging markets? Source: UPM, Euro-Graph, Pöyry 4 UPM The Biofore Company

5 We expect a predictable market development in an economically stable environment We do not anticipate disruptive changes, but accept market reality: Newspaper circulation is declining fast in main markets, with Germany being relatively resilient Magazine publishers continue to build on printed editions, decreasing circulations are partly offset by a continuous flow of new titles in niche segments Direct Marketing continues to develop with variations from market to market, e.g. increasing in Germany while dropping in the UK Catalogues remain a means of consumer activation, cases of pure online-retailers and specialist stores investing in printed catalogues increase Fine papers continue playing an important role in private and office uses resulting in a relatively slow decline, regulatory changes remain a risk-factor. 5 UPM The Biofore Company

6 Some end-use trends support UPM performance Retail heavily builds on print marketing Print retains a relevant role in today s media mix Advertising expenditure, M 600 Average 2015 & 2016 Average 2016 & % 20% 40% 60% 80% % Share of print Print vs. digital, % share of publishers revenues 2017 Digital 13%* Print 87% 25 0 *2015: Digital: 10% Source: Nielsen advertising media mix Germany, Source: PWC media outlook 6 UPM The Biofore Company

7 Our focus: Strengthen industry leadership role 1 Uncompromising performance 2 Targeted innovation 3 Commercial excellence Continued focus on stringent capacity management and performance improvement. Zero accidents Targeted investments in innovation to drive performance, increase efficiencies and extend our position in the market. Leadership Optimize and evolve commercial interface and supporting processes to ensure supply security and customer value add. Focused on sustainability 7 UPM The Biofore Company

8 Deep Dive: Uncompromising Performance Striving for maximum asset utilization Pilot project: UPM Hürth Mill Developing our assets for further efficiency gains Conscious technology investments with clear payback focus Onboarding of available new technologies and digitalization to support flexibility and process excellence Digitalized maintenance concepts with foreseeably positive impact on overall performance Better plannability increases supply security and technical mill performance Positive financial impact through reduced downtimes and overall reduction of maintenance costs 8 UPM The Biofore Company

9 Deep Dive: Targeted Innovation Eliminating redundant reserves by holistic end-to-end approach Suppliers Inventory Management Raw Material Consumption Forecast Customer Demand Demand based supply Inventory level data & Consumption forecast Recipe Data Production Plan Digitalized End-to-End Supply Management Digitalization of supply chain is a reference case for our focus on process automation and digitalization Conscious investment in end-to-end planning and forecasting systems Process optimization for better integration of external partners End-to-end supply chain with positive impact on operations Reduction of working capital Streamlined processes for more efficient operations Strengthened supplier relationships through improved visibility and plannability 9 UPM The Biofore Company

10 Deep Dive: Targeted Innovation Pushing product development for new end-use areas We invest in extending our portfolio to address new, profitable end-uses: Capturing market opportunities Securing asset utilization Extending customer base Supporting bottom line Successful market launches in past years (examples): Thin paper for book publishing and industrial end-uses CSWO paper with added economic benefits for news printers Book paper from Germany for Central European markets DigiPapers to entering growing, profitable segments UPM The Biofore Company

11 Deep Dive: Commercial Excellence Strengthen customer experience to support market position Strong global presence Increased use of ecommerce solutions eorder usage development first 9 months after start Paper mills Sales company Sales/Local contact Agent UPM Sourcing, Logistics Head Office Overall Linear (Overall) Strengthening our customer interface Conscious decision to maintain strong local footprint Significant investment in ecommerce solutions Conscious development of service offering Securing high level supply security as a competitive factor Extend ecommerce solutions into production and distribution planning Conscious investments in process optimization and logistics excellence 11 UPM The Biofore Company

12 UPM Communication Papers Key messages We are committed to paper Communication Papers has proven it can deliver predictable and good results The market reality has been firmly embedded in the business strategy Performance focus remains at the heart of everything we do We innovate and develop our business to secure our strong market position and capture emerging opportunities globally 12 UPM The Biofore Company

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